Mexico president apologizes for scandal, vows to fight graft with new law

MEXICO CITY, July 18 (Reuters) - Mexico's President Enrique Pena Nieto apologized on Monday for a damaging conflict-of-interest row in 2014 surrounding his wife's purchase of a luxury home from a government contractor.

Pena Nieto made what was an unusually frank apology for a Mexican leader over the scandal as he signed into law a new anti-corruption system that the government hopes will boost its credibility in the run-up to 2018 presidential elections.

Addressing political leaders at the unveiling of the new anti-graft rules that increase oversight of politicians, Pena Nieto admitted the scandal had damaged the Mexican people's faith in the presidency and the government.

"For this reason, with all humility I ask your forgiveness," he said. "I reiterate my sincere and profound apology for the offense and indignation I have caused you."

The president stressed he had not broken the law, and pledged to redouble efforts to fight graft in Mexico.

Pena Nieto's Institutional Revolutionary Party, or PRI, suffered a severe reverse in regional elections last month as voters punished the party for failing to crack down on corruption, impunity and brutal drug gang violence.

Mindful of the need to clean up its image to challenge for the presidency in 2018, the party has since stressed its commitment to battling corruption.

The PRI ruled Mexico for more than seven decades continuously until it was voted out in 2000, by which time the party name had become a byword for corruption.

Pena Nieto, 49, brought the PRI back to power in 2012. But old criticism of the party returned when it emerged in late 2014 that First Lady Angelica Rivera was buying the multi-million dollar house from Grupo Higa, a major government contractor.

It then emerged that Pena Nieto's finance minister had also bought a home from the same contractor, and that the president had enjoyed rent-free use of another house owned by the group in 2012.

A government-sponsored investigation later found no evidence of any wrongdoing by the three, though it was panned as a whitewash by the opposition.

Earlier on Monday, the official who led that investigation stood down to make way for the new anti-corruption regime.

The home scandal also damaged Mexico's relations with China, because it caused the cancellation of a multi-billion dollar contract won by a Chinese-led consortium to build a high-speed rail link. Grupo Higa was part of the consortium. (Additional reporting by Veronica Gomez; Editing by Alan Crosby)